How Spotify's Casual Encounters Seduce Young U.S. Music Lovers

Music listeners today want to fool around with all sorts of artists without the hassle of commitment. Spotify's cool with that. Here's what the streaming service brings to the U.S. music biz and freewheelin' music consumers like you.

Spotify launched in the U.S. today and offered the greatest proof to date that MP3s are the new CDs. Except you can't use MP3s as drink coasters.

Remember, CD sales tanked in 2010 for the fourth year in a row, falling by almost 20%. Even single digital track sales flattened to a meager 1% increase. Digital albums did better, growing by 13%, according to SoundScan, but overall the old music sales model is looking haggard. Digital sales might not be enough to make the industry vibrant again.

Spotify, though, joins a growing number of streaming music services now targeting music consumers who throw away (i.e. quit listening to) digital downloads faster than you can say "Gucci Gucci." (Phrase you won't hear: "Kreayshawn isn't really writing songs, she's writing albums.") Meanwhile, music collectors find fewer things they want to actually own in the scrap bin of pop singles. Streaming services let both types listen to tons of music without the commitment of buying. Sometimes, users will even commit to paying a monthly fee for that service.

In other words, music consumers want to fool around before they settle down. And Spotify is a hot friend with benefits.

I've been playing with the service intermittently for about a year, first via a proxy server that fooled Spotify into thinking I was in the U.K. (Spotify was even cool with that), lately via a legit hookup with the premium Swedish version, now with the new American offering. I'm a full-fledged music flirt now. And I am the future.

What Spotify Is

Acoording to press materials, Spotify has more than 10 million registered users and more than 1.6 million paying subscribers in seven countries in Europe—and now the U.S. And in 2010, Spotify was the second largest source of digital music revenue for record labels in Europe. In early polls, respondents reported curbing piracy in favor of Spotify.

Users are as old as 80 but are typically young, Spotify chief content officer Ken Parks tells Fast Company. "That's a demographic that's been lost by the music industry. The great thing about Spotify is that it's attracted those users. It causes them to revalue music. A significant number of them actually end up subscribing to the paid tiers. That's something that the music industry has been happy about because it points the way to the future," Parks says.

If you consider record labels innocent victims of digital pickpockets and pirates, then Spotify, like Apple's file laundering Match service, is a consolation prize—it pays labels a fraction of the money earned from physical or even digital music sales but far more than the zero percent they earn from pirated tracks. If you think the music industry cruised too long without innovating and blew massive revenues on coke and limos, then Spotify's just a long overdue come-down. Either way, says Parks, "That we've come on board in the U.S. with all four of the major labels is validation of the basic precepts of the model."

What Spotify Isn't

As much as various other types of streaming services are mentioned in the context of Spotify—and all help push listeners toward a future of access rather than a future of ownership—only one is a direct competitor.

Spotify isn't really competing with iTunes. It doesn't offer you a chance to own files or even buy them. It's agnostic in terms of what service you use to do that. It doesn't Match your old pirated files to new Spotify files. It will migrate your iTunes tracklisting into the Spotify player, which makes it a replacement for the iTunes on the desktop. Convenient, but hardly a threat to the iTunes behemoth.

Spotify doesn't upload anything you own to the cloud, like Amazon's locker or Google Music, to make it accessible on mobile devices. But like Google Music, Spotify does organize what you own, and that's a minor encroachment. (Also, yes, there is a product that exists called Google Music. You probably don't use it.)

It's not Pandora either. You pick your tracks. Friends can share playlists, and there are highlighted new releases, but mostly you decide what specific tracks to hear.

Which leaves Rhapsody. "It's a beautiful day out, weather-wise, but is it a good day?" I joke in a conversation with Jon Irwin, president of Rhapsody, on Thursday morning, the day of Spotify's launch. "It's always a good day! Why? Did someone come into the industry that I need to know about?" Irwin jokes right back. But, getting serious, he acknowledges Spotify is his newest, most direct competitor. (Spotify is even using the same "anywhere, anytime, on any device" rhetoric Rhapsody has used for years.)

"What Spotify is doing is that they've been successful in raising a fair amount of capital on a very healthy valuation based on a model in Europe that's promising people music for free in a non-mobile fashion and then over time … they've started turning the screws down," Irwin says. In Europe, users are capped on the number of hours and the number of times they can play a single track. "If I could only listen to 'Paint It Black' five times, I'd jump out the window," Irwin quips. But for invited participants in the U.S. version of Spotify, that's not currently the case.

At the rate of $9.99 per month, there aren't too many differences between Spotify and Rhapsody: Spotify runs quicker and without crashes on an old iPhone; Spotify's standalone desktop player makes it easy to sync locally stored songs. Spotify has more social playlist sharing tools than Rhapsody. They're coming, Irwin says. Any other small difference could change with new versions of either service.

When iTunes announced its cloud offerings and Match service recently, Irwin said Apple's quality product would help Rhapsody by bringing awareness to cloud music. Suffice it to say, Spotify's not quite as welcome. But like the curmudgeon searching for music worth owning or new kids happy to hop from hot track to hot track without committing to ownership, Spotify and Rhapsody have a growing place in the new music economy. Both agree it's headed away from ownership.

"Ownership is increasingly less relevant to people who listen to music, especially the Internet-savvy computer generation," Spotify's Parks says. "What matters most to them is that they have access to an experience that's really great."

On the same topic, Irwin says, "It's a rental economy. It almost sounds like a bad thing. It's not. It's a very powerful thing."